Thursday, November 20, 2008

Deflationary shitstorm

Excuse my French and all, but it's game over. The 2008 stock market crash is one for the history books. The government and for profit "Federal" "Reserve," which is neither of these things, has lost the battle. Not that they really had a decent shot anyway. The scenes coming to America in a short while will test every citizens' faith in the "system."

This is end of empire type stuff we are witnessing. Those who think we're going to bounce back because that's what America does are no longer using reason or common sense, but blind hope and faith. There is nothing wrong with hope, but it's time to come to grips with reality. Our system is in for a complete overhaul that will be forced upon our leaders by external realities, since they are incapable of being forward thinking or proactive.

A serious currency crisis no longer seems implausible and is the only real alternative to a long lasting deflationary depression that will make the first one not seem so bad. If you have not bought physical gold coins or bars to be kept in a safe physical location near you, stop procrastinating. Paper money and the banks behind it are broke, desperate and suspect.

I only have one chart for today, which I ask you to look at long and hard - Citigroup over the past 15 years or so:

How many times have we been deceived by and about this company? Remember when the government banned short selling this company? Remember when everyone and their brother on CNBC/MSNBC/Cramer's show said to buy this company on the dips? This company has been dog shit sitting on a foundation of cancer for years. Who warned you? Who helped the poor retail/individual investor avoid losing everything they owned? This is a widow and orphan stock, people. Apparently, financial planners in this country don't think much of our widows and orphans.

Stop listening to people who got it wrong. Stop believing all the bullshit you're told about investing in blue chip companies and holding them forever. Gold doesn't bullshit anyone. India, China, Russia, Saudi Arabia and Iran are all buying the precious metal hand over fist. When promises can no longer be kept and all the illusions are shattered, gold will remain real money and a real store of value. Did you know we've been in a secular bear market since 2000? Did you know the bull market from 2003-2007 was composed essentially entirely of currency debasement/inflation and recklessly low government sponsored interest rates?

OK, enough gloom and doom. It's time for a brief rally already. I think the lows for this leg down will be put in this week, although tomorrow has the potential to be crazy as all hell.

Gold is holding strong and actually managed to go up today amidst the carnage. Unfortunately for me, that means my final gold stock low ball order offers didn't fill. It doesn't pay to chase stocks up in a market like this.

One ounce of gold will buy the entire Dow Jones Industrial Average before this bear market is over. At $750/ounce gold and a 7500 Dow Jones level, we're still at a 10:1 Dow to gold ratio. We're going to get to a 1:1 ratio. You do the math. This is what opportunity is made of - BUY PHYSICAL GOLD! Traders should buy gold stocks (or any old turkey stock really) and look for a multimonth rally potentially starting tomorrow. Investors should buy physical gold and gold stocks mingled with short-term US government bonds of 1-5 years' duration (or other cash equivalents).

By the way, once the coming short-term rally is over, there will be HUGE profit potential going short next spring. If you don't know anything about going short stocks, you have 3 months to learn. The next leg down after the obligatory 2-4 month bear market bounce may be almost as wicked as the one now ending. This is more opportunity knocking up ahead.